Introduction
The Indian Companies Act, 2013 has
replaced the Indian Companies Act, 1956. The Companies Act, 2013 makes the
provisions to govern all listed and unlisted companies in the country. The
Companies Act 2013 implemented many new sections and repealed the relevant
corresponding sections of the Companies Act 1956. This is landmark legislation
with far-reaching consequences on all companies incorporated in India.
It is needless to say that we have a
multitude of companies of various kinds. From corporate companies to one Person The company, we have so many kinds of companies[1].
Mainly these companies can be classified on the basis of the size of the company, the number of members, control, liability and manner of access to capital. This the article shall be talking in-depth about all such and various other kinds of
companies too.
2. Classification of
companies:
2.1. On the basis of size or number of members in a
company:
Private Company:
·
Defined
u/s 2(68) of the CA, 2013 –
A
private company means a company which by its articles—
A.
Restricts the right to transfer its
shares;
B. Limits the
number of its members to 200 hundred (except in case of OPC)
Note:
- Persons
who are in the employment of the company; and persons who, having been
formerly in the employment of the company, were members of the company
while in that employment and have continued to be members after the
employment ceased, shall be excluded.
- Where
2 or more persons hold 1 or more shares in a company jointly they shall be
treated as a single member.
·
Prohibits any
invitation to the public to subscribe for any securities of the company;
·
Section 3(1) of
the CA, 2013 – Private
Company may be formed for any lawful purpose by 2 or more persons.
·
Section 149(1) of
the CA, 2013 – Every Private Company shall have a minimum of 2 directors in
its Board.
·
Section 4(1)(a) of
the CA, 2013 – A private company is required to add the
words “Private Ltd” at the end of its name.
·
Special privileges – Private Companies enjoys several privileges
and exemptions under the Companies Act.
·
Defined u/s 2(71)
of the CA, 2013 – A public company means a company that is not a
private company.
·
Section 3(1) of
the CA, 2013– Public company may be formed for any lawful
purpose by 7 or more persons.
·
Section 149(1) of
the CA, 2013 – Every public company shall have a minimum of 3 directors in
its Board.
·
Section 4(1)(a) of
the CA, 2013 – A public
company is required to add the words “Limited” at the end of its name.
·
It is the essence
of a public company that its shares and debentures can be transferable freely
to the public, unlike a private company. Only the shares of a public company are
capable of being dealt in on a stock exchange.
·
A private company
that is a subsidiary of a public company will be considered a public company.
·
With the enactment
of the Companies Act, 2013 several new concepts were introduced that was not in
existence in the Companies Act, 1956 which completely revolutionized corporate laws
in India. One of such was the introduction of the OPC concept.
·
This led to the
avenue for starting businesses giving flexibility which a company form of an entity can offer, while also offering limited liability that sole
proprietorship or partnerships does not offers[2].
·
Defined u/s 2(62)
of the CA, 2013 – One Person Company means a company that has
only one person as a member.
·
Section 3(1) of
the CA, 2013 – OPC (as a private company) may be formed for any
lawful purpose by 1 person.
·
Section 149(1) of
the CA, 2013 – OPC shall
have minimum 1 director in its Board; its sole member can also
be a director of such OPC.
·
Some Feature
explained! –
·
o Single-member: OPCs can have only 1 member or shareholder,
unlike other private companies.
o Nominee: A unique feature of OPCs that separates it from other kinds of companies is that
the sole member of the company has to mention a nominee while registering the
company. Since there is only one member in an OPC, his death will result in the
nominee choosing or rejecting to become its sole member. This does not happen
in other companies as they follow the concept of perpetual succession.
o Special privileges: OPCs enjoys several privileges and exemptions
under the Companies Act.
Holding Company:
Such type of company directly or
indirectly, via another company, either hold more than half of the equity
share capital of another company or controls the composition of the Board of
Directors of another company.
A company can become the holding
company of another company in any of the following ways:
·
by
holding more than 50% of the issued equity capital of the company,
·
by
holding more than 50% of the voting rights in the company,
·
By
holding the right to appoint the majority of the directors of the company.
Subsidiary Company:
·
Defined u/s 2(87) of the CA, 2013 – “subsidiary company” or “subsidiary”, in relation
to any other company (that is to say the holding company), means a company in
which the holding company—
1. Controls the
composition of the Board of Directors; or
2. Exercises or
controls more than one-half of the total voting power either on its own or
together with one or more of its subsidiary companies:
Provided that such
class or classes of holding companies as may be prescribed shall not have layers
of subsidiaries beyond such numbers as may be prescribed[3].
Explanation: For
the purposes of this clause-
1. a company shall
be deemed to be a subsidiary company of the holding company even if the control
referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary
company of the holding company;
2. the composition
of a company’s Board of Directors shall be deemed to be controlled by another
company if that other company by exercise of some power exercisable by it at
its discretion can appoint or remove all or a majority of the directors;
3. The expression
“company” includes any body corporate;
4. “Layer” in
relation to a holding company means its subsidiary or subsidiaries.
Government Company:
“Government company “under Section 2(54) of the Companies Act, 2013 is essentially defined
as, that company in which equal to or more than 51% of the paid-up share
capital is held by the Central Government, or by any State Government or
Governments (more than one state’s government), or partly by the Central
Government and partly by one or more State Governments, and includes the company, which is a subsidiary company of such a Government company[4].
A government company gives it's annual
reports which have to be tabled in both houses of the Parliament and state the legislature, as per the nature of ownership.
Some examples of Government Company
are National Thermal Power Corporation Limited (NTPC), Bharat Heavy Electricals
Limited (BHEL), etc.
Non-Government Company:
All other companies, except the
Government Companies are known as Non-Government Companies. They do not
possess the features of a government company as stated above.
Associate companies
The provisions of
Section 2 (6) of the Companies Act, 2013 and Rule 2 of Companies
(Specification of definitions details) Rules, 2014, essentially explains
(defines) “associate company” as;
For companies say
X and Y, X in relation to Y, where y has a significant influence over X, but X
is not a subsidiary of y and includes Joint Venture Company. Here X is an
associate company. Wherein;
1. The expression, “significant influence” means
control of at least twenty per cent of total voting power, or control of or
participation in business decisions under an agreement.
2. His expression, “joint venture” means a joint
agreement whereby the parties that have joint control of the arrangement have
rights to the net assets of the arrangement.
When a company
under which some other company holds either 20% or more of share capital, then
they shall be known as Associate Company.
If in case a
company is formed by two separate companies and each such company hold 20% of
the shareholding then the new company shall be known as an Associate Company or
Joint Venture Company. The Companies Act 2013 for the first time had introduced
the concept of the Associate Company or Joint Venture Company in India through
section 2(6). A company must have a direct shareholding of more than 20% and an indirect one is not allowed.
For example, A
holds 22% in B and B holds 30% in C. In this case, C Company is an associate of
B but not of A.
2.4. Classification of Companies On the basis of
nationality or jurisdiction
a) Indian Company: A company that is incorporated
in India is known as an Indian Company. It should be registered under the
provisions of the Indian Companies Act, 1956. Its registered office should be
in India though it may carry on the business outside India.
b) Foreign Company: A company that is incorporated
outside India but carries on the business in India through its branches is
known as a Foreign Company. The Companies Act 1956 provides the same provisions
for foreign companies carrying on business in India[5].
In case 51 % or more of the paid-up capital of a foreign company is held by one
or more citizens or/and one or more corporate bodies incorporated in India,
such a company should comply with the formalities prescribed as regards to the business carried on in India as if it were a company incorporated in India. A foreign company must file the following documents within the 30 days
of its incorporation in India:
i) Certified copies of its MOA (Memorandum of
Association) and AOA (Articles of Association)
ii) Full address of its registered office
iii) Full particulars of its directors and secretary
iv) Name and address of its authorized representative in
India
v) Full address of its principal place of business in
India
c) Multinational company: Multinational Company is a
company that has production and marketing facilities in several countries. A
multinational company can operate in different countries through branches,
franchises, joint ventures, and subsidiary companies.
Examples: IBM, Pepsi, Nestle, Siemens.
5. Conclusion
In light of the above discussion, it can be
understood that the companies under the company Act are divided into different
categories. This classification is based on nature and modus operandi of
the companies. A company may be a private company and a public company on the
basis of the control of the company. one person can also make a company and a company can also be owned by more that one person.
[1] Kinds of company, by Diganth Raj
Sehgal, available at: https://blog.ipleaders.in/kinds-of-company/ [visited on
9/11/2020].
[2] Types of Companies under Companies
Act, 2013, by sheetal shukla, available: https://taxguru.in/company-law/types-companies-companies-act-2013.html
[visited on: 9/11/2020].
[3] Dr G.K. Kapoor and Dr Sanjay
Dhamija, Taxman’s Company Law and Practice A Comprehensive textbook on
companies Act 2013, 35 (Taxman
Publications (P.) Ltd.24th
Edition August 2019).
[4] Id, page no. 56
[5] Id, page no. 61
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